BME with Study on the Supply Chain Due Diligence Act

Study by BME and IntegrityNext on the Supply Chain Due Diligence Act (LkSG). German companies are currently preparing for the new law and its transparency requirements regarding sustainability in the global supply chain. However, they still face challenges in operational implementation, and there is a need for improvement in risk management systems.

(Munich/Eschborn) This was the result of an online survey conducted by the solution provider IntegrityNext and the Federal Association of Materials Management, Purchasing and Logistics e.V. (BME) among a total of 282 participants. As of today, the majority of companies are already conducting supplier assessments on sustainability issues such as human and labor rights as well as environmental protection. A large portion of the surveyed companies will now additionally review their supplier network for sustainability criteria in accordance with the LkSG within the next six to twelve months.

The consideration of so-called ESG criteria (Environmental, Social, and Governance) in risk management and decision-making processes is not solely driven by legislative requirements. The companies’ sense of responsibility, the maintenance of competitiveness, and pressure from their own customers also play a role.

The biggest challenges in implementing the LkSG within companies are cited by 81 percent as the associated time expenditure, and 75 percent mention the collection and processing of the large volume of data that arises when assessing the sustainability performance of hundreds or thousands of direct suppliers. In this context, according to 84 percent of respondents, either individual responsible persons or dedicated teams should be tasked with addressing this new challenge within companies. For the majority, the use of a technology-based solution tailored to the LkSG requirements for the systematic collection and analysis of supplier data is planned.

“The relevance of sustainability among suppliers and in supply chains is increasing unabated. Companies must now prepare to ensure compliance with the new requirements of the Supply Chain Due Diligence Act by January 2023. The issue can be solved with technology and digitalization; however, doing nothing is not an option,” says Martin Berr-Sorokin, CEO of IntegrityNext.

Difference Between Risk Analysis and Risk Management

“Although the majority of surveyed companies already assess their suppliers regarding sustainability today, there is a difference between risk analysis and risk management. In the latter, most companies still need to make adjustments to professionally address sustainability risks,” emphasizes BME Managing Director Dr. Helena Melnikov.

The Supply Chain Due Diligence Act will come into force on January 1, 2023, initially for companies with more than 3,000 employees. One year later, on January 1, 2024, the threshold will be lowered to 1,000 employees. Therefore, many of the affected companies have only a little less than a year left for preparation and implementation.

About IntegrityNext

IntegrityNext is a leading global solution provider for monitoring sustainability and compliance in the supply chain. IntegrityNext’s risk management software enables companies to quickly and cost-effectively assess their supplier base concerning sustainability-related regulations (e.g., Supply Chain Due Diligence Act), standards (e.g., international human and labor rights), and self-commitments (e.g., decarbonization of the supply chain / Net Zero). IntegrityNext helps its clients identify and manage ESG risks along the value chain, thereby reducing reputational and financial risks.

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Photo: © BME